Aviva plc: Worldwide long-term savings new business – 12 months to 31 December 2006
Aviva UK
Norwich Union made a strong start to 2007 following a record sales performance in 2006 with total sales, including investments, up 9% to £3,500 million (2006: £3,207 million). During the first quarter, Norwich Union has also made significant progress in its strategic priorities outlined in October 2006 including simplifying its legacy systems, the potential reattribution of its inherited estate, service improvement, customer retention and cost efficiency.
Strategy implementation update
Legacy simplification: In March, Norwich Union announced an administration outsourcing agreement with Swiss Re that will allow the company to improve further its service levels and the efficiency of its business. Norwich Union will decommission 220 of its systems, with migration starting in October 2007 and continuing into 2009.
Service improvements: Norwich Union’s ongoing focus on service continues to deliver improvements for customers and financial advisers, and the company’s service capability is increasingly well placed to support its overall objectives. Customer satisfaction and advocacy scores have improved over the quarter and a regular independent survey of financial advisers conducted in February showed that the company maintained first place with its highest ever adviser service ratings1.
Persistency: The company has continued its programme of activity to improve persistency, including active customer calling, targeting the 200 poorest performing distributors as well as changing the adviser and salesforce remuneration models. Bond, protection and pension lapse rates are currently in line with expectations.
Efficiency review: Norwich Union remains on target to deliver £125 million of annualised cost savings in its life business by 2008. The savings will increase the company’s new business contribution, will substantially reduce its adverse expense experience and improve its non-insurance business profitability. Since the announcement in September 2006, the company has delivered estimated annualised cost savings of £67 million.
Sales updateNorwich Union’s strong sales performance continued to build on the exceptional sales growth that the company announced in the first quarter of 2006, which was driven by its excellent performance in the run-up to A-Day. Excluding pensions, sales increased by 22%, demonstrating the benefit of the company’s broad based product strength and performance.
New business margin increased to 3.0% (2006: 2.8%) as the company continued to balance price, volume and mix in order to maximise overall shareholder value. Margin growth was also driven by a reduction in its new business administration costs achieved as part of its efficiency review. As a result of this, new business contribution increased by 12% to £86 million (2006: £77 million).
Norwich Union achieved strong first quarter investment sales with bonds growing by 28% to £1,004 million (2006: £787 million), reflecting growth of 125% to £311 million (2006: £138 million) of its unique guarantee-backed RPI bond.
A strong performance in collective investments resulted in sales growing by 48% to £657 million (2006: £444 million). Strong consumer demand for property funds has continued and the company continues to benefit from Morley’s strength in this market. The Norwich Union UK Income Opportunities fund, one of the company’s best selling equity funds, delivered strong growth and significantly outperformed its benchmark2.
As expected, due to Norwich Union’s strong pre A-Day performance in the first quarter of 2006, total pension sales were lower at £1,146 million (2006: £1,272 million). Individual pension sales, including group personal pensions, of £894 million were lower by 11% (2006: £1,001 million) primarily due to a fall in stakeholder sales. Individual pension sales were more profitable than in the first quarter of 2006 due to the impact of the higher charging structure on stakeholder pensions implemented in the second quarter of 2006. Norwich Union launched its SIPP3 in April 2006 and sales were very encouraging at £97 million, 35% higher relative to the fourth quarter (Q4 2006: £72 million). In the corporate pensions market, sales were down by 7% to £252 million (2006: £271 million), reflecting a longer-term trend towards group personal pensions and away from trustee-based corporate pension schemes.
Annuity sales increased strongly by 19% to £412 million (2006: £347 million) as the company’s competitive pricing and strong service enabled it to maximise internal transfer rates in a growing market. As part of the wider drive into the employee benefits market, Norwich Union has implemented, at minimal cost, the necessary infrastructure to participate in the BPA market. It continues to quote on potential deals with a range of employee benefit consultants and financial advisers. The general market levels of profitability have been unattractive to date.
Protection sales were lower at £222 million (2006: £272 million) due to the slowdown in the payment protection insurance market and two partnership agreements concluding at the end of 2006. Against the fourth quarter of 2006, Norwich Union improved its position with sales increasing by 10% (Q4 2006: £201 million). During the first quarter of 2007, the company maintained a leading position in the financial adviser market and further developed its capability in the direct to consumer market.
Equity release sales of £59 million were 31% down (2006: £85 million) as the equity release market became increasingly competitive with a number of new entrants. Norwich Union expects its sales performance to improve in the second half of the year as it strengthens its distribution capacity and reinvigorates its customer proposition.
Norwich Union’s share of sales from its bancassurance partnership with RBSG continued to show excellent growth across the product range, up by 18% to £351 million (2006: £297 million). A broad product range including bonds, collective investments, pensions and protection, and an increase in the number of advisers to 860 (full year 2006: 760) were key drivers of this strong performance. In addition, the profitability of the partnership improved against the first quarter of 2006 due to enhanced economies of scale and a more balanced sales mix.
Norwich Union continues to expect full year market growth4 of 5–10% and reaffirms its aim to grow at least in line with the market, while maintaining or increasing its overall new business margin from current levels.
- Independent research – Representing the number of distributors rating Norwich Union’s service as excellent or good
- Benchmark: FTSE All Share index
- Included in collective investment sales
- Market growth projection is on an annual premium equivalent basis
